Gulf economy recovering but faces oil volatility – IMF

DUBAI, United Arab Emirates – Economic growth in the energy-rich Gulf will recover in 2018 from a contraction last year but remains vulnerable to volatility in crude oil prices, the International Monetary Fund (IMF) forecast on Tuesday, November 13.

The global lender predicted that an overall energy price recovery from 2015-2016 lows would spur the economies of the six-nation Gulf Cooperation Council (GCC) to grow by 2.4% in 2018 and 3% in 2019, after a contraction of 0.4% last year.  

Grouping Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, the GCC states together pump over 17 million barrels per day and depend heavily on crude revenues.

But “the growth outlook for oil exporters remains subject to significant uncertainty about the future path of oil prices,” the IMF said in its Regional Economic Outlook for the Middle East and North Africa (MENA).

After their earlier extended recovery, oil prices have shed a fifth of their value in just one month, with Brent crude trading near its lowest price since April. (READ: OPEC sees ‘considerable uncertainty’ in oil market)

Growth in non-GCC oil exporters in MENA, which includes Iran, Iraq, Algeria, and Libya, is projected to slow to 0.3% in 2018, from 3% the previous year, and pick up modestly to 0.9% in 2019, the IMF said.

“This largely reflects the expected impact of the reimposition of US sanctions on Iran, which is likely to reduce Iranian oil production and exports significantly over the next two years at least,” the IMF said.

It projected Iran’s economy to shrink by 1.6% this year and 3.6% in 2019.

For oil-importing countries in MENA, growth is expected to continue at a modest pace of 4.5% in 2018, before dropping back to 4% next year, the IMF said. 

This level of growth is not sufficient to create the required jobs for a region marred by instability and civil strife, it said.

Oil revenues for MENA exporters have increased by about $260 billion (230 billion euros) over the period 2016 to 2018.

This has mostly been due to a price rise generated by production cuts in nations belonging to the OPEC cartel, as well as non-OPEC producers. 

The current account balance will turn from a deficit into a surplus and overall budget shortfalls will decline, the lender said.

The IMF urged GCC states to continue with and expand reforms, welcoming the imposition of value-added tax by Saudi Arabia and the UAE.

It also called on GCC countries to impose corporate and personal income tax in order to diversify their revenue streams. – Rappler.com